Yield Is Not Fixed: Why Your Return Changes Over Time
RealYield Team
Property Analyst
One of the most common misconceptions in property investing is that once you've calculated your yield, that number stays the same as long as the tenant stays in place. The reality is that your investment's performance is constantly shifting.
Yield on Cost vs. Yield on Equity
When you first buy a property, you calculate your return based on the purchase price. If you bought for £200,000 and it nets £10,000, that’s a 5% Yield on Cost.
Five years later, that property might be worth £250,000. If it still nets £10,000, your Yield on Current Value has dropped to 4%. More importantly, if you have £100,000 of equity tied up in it, your return on that equity is 10%. If house prices double and you now have £200,000 of equity, your return on equity has halved to 5%.
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